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In a Win for Insurers, the Florida Supreme Court Affirms that Carriers Are Bound Only By the Express Terms of the Contract

On January 21, 2021, the Florida Supreme Court rendered a decision in Citizens Property Insurance Corporation v. Manor House, LLC (No. SC19-1394) related to bad faith and consequential damages in a breach of contract action. This case came to the court from the Fifth District, which certified the following questions of great public importance: “In a first-party breach of insurance contract brought by an insured against an insurer, not involving suit under section 624.155, Florida Statutes, does Florida Law allow the insured to recover extra-contractual damages, consequential damages?”

This case involved a first-party breach of insurance contract claim where the insureds, Manor House, LLC, Ocean View, LLC and Merritt, LLC (Manor House), sought to recover extra-contractual, consequential damages for lost rental income totaling approximately $2.5 million from the insurer, Citizens Property Insurance Corporation (Citizens). In August 2007, Manor House filed suit demanding prompt payment of the allegedly “undisputed” amount of $6.4 million and requesting the court to compel Citizens to engage in the policy-provided appraisal procedures. In addition, Manor House filed suit against Citizens alleging, inter alia, breach of contract and fraud. On the breach claim, Manor House alleged that Citizens failed to: (1) properly adjust the loss; (2) pay the undisputed amount after estimates; (3) honor Manor House’s demand for appraisal; (4) provide Manor House with documents it needed to adjust the loss; and (5) timely pay the appraisal award. Manor House sought to recover extra-contractual damages related to rental income it allegedly lost due to the delay in repairing the apartment complex based on Citizens’ procrastination in adjusting and paying Manor House’s claims.

The trial court granted Citizens’ motion for partial summary judgment regarding the breach of contract claim for lost rental income. On appeal, Manor House challenged, among other orders, the trial court’s order granting Citizens’ motion for partial summary judgment to prevent Manor House from pursuing a claim for extra-contractual, consequential damages. The Fifth District reversed the partial summary judgment regarding the consequential damages claim. The Fifth District concluded that when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the contract. The Fifth District further concluded that while Citizens is immune from bad faith claims, the consequential damages Manor House sought were based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith.

The Florida Supreme Court quashed the Fifth District’s decision and remanded the case based on the certified question of whether Florida law allows the insured to recover extra-contractual, consequential damages in a first-party breach of insurance contract action brought by an insured against its insurer, not involving suit under section 624.155, Florida Statutes. The Florida Supreme Court concluded that extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the policy. The court confirmed that extra-contractual damages are available in a separate bad faith action pursuant to section 624.155, but Citizens in the instant case was statutorily immune from first-party bad faith claims.

This case further solidifies that insurance contracts are interpreted based on their express terms and conditions and the Florida courts are not going to force insurance carriers to pay for more than they specifically bargained for when issuing insurance coverage to their insureds. Specifically, this case conveys that parties to an insurance contract cannot “contemplate” remedies but, in fact, are bound only by the express terms of the contract. Importantly, the court does not state that extra-contractual damages cannot be obtained once the carrier’s liability is determined. Consequential damages can still be sought through a bad faith action, which can only be brought once an insured is successful in their underlying breach of contract lawsuit. Only once coverage is determined and the carrier is found to have wrongfully (1) denied the claim or (2) underpaid the claim, can an insured proceed to attempt recovery of extra-contractual damages from their carrier.

The court was clear when it determined, based on Citizens’ unique position of being a government entity, that Citizens can avoid having such extra-contractual damages asserted against them as they are immune from bad faith litigation. However, private insurance companies do not receive the same immunity and can end up paying for extra contractual damages in a second lawsuit, which has a more liberal discovery process and greater exposure to damages that were not contemplated when the parties entered into the insurance contract. Thus, if insureds are seeking consequential or any other extra-contractual damages, they must first be successful in proving the insurance carrier wrongfully denied or underpaid them, and then must prove they suffered damages that were not specifically provided for under the express terms of the insurance contract.


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